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Credit Cards vs. Debit Cards

You swipe them both at the cash register, so what's really the difference?

Let's start with the basic definitions. A credit card is used to borrow money to buy goods and services, with the key condition that the money will be paid back at a later date. On the other hand, a debit card takes money straight from the user's checking account when used.

Now, we can look at some key features:

Credit Cards:

  1. You can pay the bill at a later date.

Credit cards allow you to borrow funds, and make payments at later dates. These payments are usually made monthly.

2. It affects your credit score.

Using a credit card affects your credit score, and it can either increase or decrease it. Making late payments, accruing interest, and opening too many cards can all damage your credit score. Making payments in full and on time can help to increase your score.

3. You may be subject to interest fees.

If you do not make your payments in full and on time, you may be subject to high interest rates on your remaining balances. This can add up quickly!

4. You have a credit limit.

This is the maximum amount of credit that you have access to. It is recommended that you try to spend less than thirty percent of this limit. If you spend more than thirty percent, it could hurt your credit score.

5. You can earn rewards.

Some credit cards are rewards cards, and offer benefits in terms of cash-back or travel points.

Debit Cards:

  1. It is directly connected to your checking account.

As you use a debit card, your purchases are paid with money from your checking account. This makes it comparable to using cash, which is why it is important to track your spending habits and budget your money to prevent overspending!

2. It does not affect your credit score.

Debit cards do not impact your credit score, as you are not borrowing funds or using a line of credit.

3. There are no interest fees.

Debit cards do not have interest fees because the money is coming from your account and you are not using credit.

4. You have a daily purchase limit.

This is a limit on how much money you can spend in 24 hours. It may be difficult, therefore, to use a debit card for a very large purchase.

5. You can earn rewards.

Some debit cards offer rewards, which can be in the form of cash-back just like some credit cards.

These are some of the key features of credit and debit cards. For more information on credit cards, check out this post: Pros and Cons of Credit Cards

If you want to learn more about credit and debit cards, here are some nice articles:

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